blog09sep2007

Hot Off the Web
This is a somewhat belated September 9th blog, as we got in after midnight last night from a week in the magnificent Canadian Rockies. We got in lots of great scenery, food and hiking!
In Financial Post’s “Use your home’s equity, but don’t forget the debt” , Jonathan Chevreau discusses the availability and use of reverse mortgages for 60 and over Canadians. There is now a second provider Seniors Money International, in addition to Canadian Home Income Plan Corporation (CHIP). Reverse mortgages in effect allow you to tap into the value of your home (CHIP allows up to 40% of the value of the home). The primary feature of the reverse mortgage, in addition to being a higher cost option than other mechanisms of making ends meet in retirement, is that it allows you to stay in your home. He also refers to P.J. Wade’s (3rd edition) of “Have your Home and Money”.
Richard Croft in Financial Post’s “Build a portfolio with four ETFs”  reminds us that in the market turmoil over the past several weeks, the focus should still be on the portfolio rather than securities or the various markets. He then proceeds to show how you could construct a well diversified portfolio with only four low cost ETFs: XBB (Canadian Bond market), XIC (S&P/TSX Composite Index), XSP (S&P 500 index hedged back to the Canadian dollar) and XIN (MSCI EAFE Index hedged backed to the Canadian dollar). This is not unlike the approach advocated at this website (though I have a tendency to use un-hedged instruments, which have not served me well over the recent run-up of the Canadian dollar; but as they say I am in it for the long-run and unhedged positions actually add to the level of diversification)
In “Smart hedge funds that capitalise on dumb money” Arne Alsin of the Financial Times rips apart hedge funds as an investment vehicle. His listed problems areas include: lack of transparency (hedge funds claim that they limit disclosure for competitive reasons), only rate of return is provided and some commentary (which is meaningless without knowledge of use of leverage, illiquid and difficult to value assets, speculative securities, derivatives), misaligned investor and manager incentives (e.g. impact of use of leverage- upside shared by manager while downside all borne by investor) and lack of regulation put all reporting by hedge funds in question.
Rob Carrick in Globe and Mail’s “Big funds tend to deliver for their investors”  looked at Canada’s largest mutual funds, by assets, which have 10 year records. His conclusion, based on the 25 funds considered, is that the funds have earned the investors’ trust as all but one of the ten most widely held ones had first quartile performance. Too bad he didn’t include the applicable reference benchmark for each fund; this would have given the reader a better view of what would have been possible to earn with a representative low cost index fund for the corresponding asset class?!?
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